Pension reform will leave millions of retirement savers locked into a lifetime of poverty and uncertain returns from their investments, says a new report.
Two generations will be lost in a financial wilderness, claims Becky Tilston-Hales, managing director of fund manager BlackRock.
She argues the government has abandoned those in the 40s and 50s in favour of helping younger savers gain a more comfortable retirement.
Older savers are left to the whims of rises and falls in the stock market to determine how much money they have to spend in their later years.
Those that have already retired are enjoying the fruits of final salary pensions that guarantee a generous income, she explained, but those stuck in the middle are not so lucky.
Golden age of pensions ended
She argues that savers that have already retired treat savings and investments outside of the pension as a bonus to pay for holidays or to top up their spending.
“Middle aged savers won’t be anywhere near as lucky,” she said. “They won’t have time to build a pot big enough to match those that have gone before them and volatility in the financial markets and poor growth over the next few years will hamper their efforts to save.
“Some may have to throw themselves on the state for help, but will find the government unforgiving and difficult to deal with. The only other choice they have to build a decent fund is to stay invested in the stock market.”
However, she praised the government’s auto-enrolment scheme as a step in the right direction for younger savers.
Pension beats Lifetime ISA
“Even these younger savers will face financial difficulties if they don’t save enough,” she said.
“Just scraping buy on the minimum amount to save is unlikely to be enough.2
She also looked at a comparison between pension saving and the new Lifetime ISA announced by Chancellor George Osborne in Budget 2016.
“If a saver put £4,000 into a pension and the same amount into an ISA, the pension offers a £6,800 return, while the ISA gives £5,000,” she said.
“Financially, a pension is better than the ISA, but many savers will want the flexibility of an ISA rather than locking up their money for much longer with a pension.”
